Why did the banker switch to a career in baking?

Answer : Because he kneaded dough instead of cash!

Now lets get down to business -

THE MONETARY SYSTEM

It is something we all need to understand, but ask anyone at random what it means and chances are they come back with a wrong answer, or a stupid look on their face.

The monetary or money system refers to the infrastructure and institutions that create, distribute and regulate the supply of money in an economy. The money system is what stops us from entering chaos. It keeps things civilised with paper and is a critical component to any modern economy. The monetary system can go very wrong, and has done in a number of nations in the past. This results in that nation collapsing, but if managed well it can continue the exchange of goods and services, facilitate economic activity and trigger growth.

The monetary system is comprised of several moving components. The first is currency, which is the physical notes and coins used to represent money. Traditional currency is issued by a central bank and is backed by the government. The importance of banks is then seen, as up to a certain amount, the deposits (or the citizens money) is insured by the government, and backed by the assets held by the bank. This aspect is closely linked to the central banks, which are responsible for regulating the money supply. They also oversee the macro banking system.

In most Western and far east Asian countries, the central bank is a government institution that sets monetary policy. It guides the supply of currency and credit, which the commercial banks work off of. Outside of their main business activities, commercial banks create money through the process of fractional reserve banking. This allows banks to lend out more money than they have in deposits. After some large bail outs, the world seems to be changing course and payment systems are taking on a more important role in the money system, meaning truly private financial enterprise is gaining more influence than ever before. The companies providing payment services provide the infrastructure and technology which allows for the transfer of money between individuals and businesses. As technology advances this continues to change. Payment systems can include credit card networks, wire transfer systems, mobile apps nd electronic payment systems.

The money system, like banking, is heavily regulated to ensure the stability and security of the financial system, and to protect consumers from fraud and abuse. Governments, revenue departments, tax agencies and central banks play a critical role in setting monetary policy and overseeing the money system. It is the commercial banks and other financial institutions that provide the services and infrastructure to enable individuals and businesses to participate in the economy.

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